If you’ve followed VGI for any amount of time, you know we don’t waste words. Our CIO, Mark Scalzo was a recent guest on the Destra Capital Credit Events Podcast and he got straight to the point.*

Being an investor in Credit, we know it is often dismissed as a dull, yield-chasing game. But that’s a blind spot, and in a world where risk lurks in places most investors aren’t looking, that blind spot can be costly. The good news is there are emergent points  of inflection everywhere, especially where there are blind spots.

The Bond Market’s Edge

There’s a saying: The bond market sees trouble before the stock market does—credit markets react first, and equity markets catch up later. It’s old Wall Street folklore like this that has led many an investor astray. A better way is to put balance sheet strength at the core of an investment process. If a company’s credit profile starts deteriorating, its equity could be next in line for a beating.

The Myth of Credit Complexity

Private credit, CLOs, and structured debt products get a bad rap. Sure, they come with acronyms that scare off casual investors, but let’s be clear: complexity does not equal risk. In fact, securitized credit—when structured properly—can be more stable than investing in single corporate bonds. CLOs, for example, can have default rates far lower than traditional corporate debt. So why do investors fear them? Because memories of 2008 still linger. But the truth is, the safeguards in place today make these instruments far more resilient than most realize—if you are looking in the right place.

Private Credit: The Cool Kid That’s Getting Crowded

Not long ago, private credit was the new “cool kid” in investing. Banks pulled back on lending, and institutional investors stepped in to fill the void, locking in high returns. But when everyone piles into the same trade, returns get squeezed. Today, the illiquidity premium—the reward for locking up capital—is shrinking fast. Investors expecting past performance to repeat itself may be in for disappointment.

Credit Investing in 2025: What to Watch

So where’s the real risk? If you’re looking for the next big shake-up, keep your eyes on commercial real estate. “Extend and pretend” can only last so long, and with rates staying higher for longer, the cracks are starting to show. Leverage-heavy properties are feeling the pressure, and some equity investors will soon be handing the keys to lenders.

Like Mark says, “we don’t just invest in credit—we use it as a lens to identify emergent points of inflection as broader markets shift. Understanding credit isn’t optional; it’s a requirement for serious investors. Ignore it at your own risk.”

*Enjoy the podcast here. 

IMPORTANT DISCLOSURES: 

Securities highlighted or discussed in this blog have been selected to illustrate Validex’s investment approach and/or market outlook and are not intended to represent any strategy or portfolio performance or be an indicator for how strategy or portfolio have performed or may perform in the future. Each security discussed in this blog has been selected solely for this purpose and has not been selected on the basis of performance or any performance-related criteria. The securities discussed herein do not represent an entire portfolio and, in aggregate, may only represent a small percentage of a strategy or portfolio holdings. The strategies and portfolios are actively managed, and securities discussed in this blog may or may not be held in such strategies or portfolios at any given time. These individual securities do not represent all the securities purchased, sold, or recommended and the reader should not assume that investments in the securities identified and discussed were or will be profitable. Nothing in this blog shall constitute a recommendation or endorsement to buy or sell any security or other financial instrument referenced in this letter.

Validus Growth Investors, LLC , dba Validex Global Investing (Validex or VGI) seeks to invest in companies at every stage of their growth. From startups to publicly traded companies, our research identifies inflection points that have the potential to produce meaningful growth and income for the clients we serve.

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